October 2004

Don't miss this month's timely story ideas, direct dial phone numbers, and E-mail addresses of these accessible experts!

INVESTMENTS AND WEALTH MANAGEMENT

• Tactical Management Offers Real Innovation for Portfolio Management.
• What the Presidential Election Means for Your Portfolio.
• Oil at $50 a Barrel and an Uncertain Global Marketplace Has Investors Looking at Non-traditional Investments to Stabilize Portfolio Returns.

PERSONAL FINANCE/RETIREMENT

• Comfortable Retirements for Boomers May Depend on Their Willingness to Mortgage Appreciated Real Estate.
• Reviewing IRA Beneficiaries Critical for Estate Planning.
• A Good Mortgage Experience Requires a Broker Who Wants a Long-Term Relationship.

PRACTICE MANAGEMENT

• Top Five Reasons Brokers Need or Want to Change Firms.

E-COMMERCE

• It Pays to Focus on Website Profitability – But Most People Don’t Know How.

INVESTMENTS AND WEALTH MANAGEMENT

Tactical Management Offers Real Innovation for Portfolio Management.

Investment nirvana is to find an investment strategy that provides lower risk and stability in a portfolio without diminishing the prospect of achieving market type returns. Risk-controlled strategies appeal to the vast majority of investors and make sense as a core component for most portfolios. Modern portfolio theory was derived through academic research in the early 1950s, and is still the basis of most strategic asset allocation strategies today.  Considering the enormous changes the market and economy has undergone over the last 50 years, it is incredible that there have been no material changes to strategic asset allocation policies since then.  Of course there have been new financial instruments, such as mutual funds, but the investment industry has been slow to acknowledge new asset allocation strategies, such as tactical asset allocation, as highly important and industry changing.

Until recently, tactical asset allocation was believed to be too expensive to effectively implement. However, with the recent proliferation of exchange traded funds (ETFs) and the increasing volatility of the stock market, tactical asset allocation is now recognized as a more effective long term strategy than strategic asset allocation.  Advisors who experienced the disappointment and heartbreak of retirees who watched their assets slip away during the market downturn of 2000-2001 can benefit their clients by looking at tactically managed portfolios as a new asset allocation approach or as a core component of their clients' portfolios.

PMFM, Inc., Athens, Georgia, is a registered investment advisory firm offering separate account management services, proprietary mutual funds, and is the advisor to 401k Toolbox. PMFM's Toolbox service was recently named "Advice Provider of the Year" by Defined Contribution News, a national trade publication.   Principals are Tim Chapman and Don Beasley and they can be reached at 800-222-7636, timchapman@pmfm.com.

What the Presidential Election Means for Your Portfolio.

In this presidential election year, there has been no shortage of prognostications, from the initiated and the uninitiated alike, regarding what November 2, and the outcome of the Bush-Kerry battle, will mean for your investment portfolio. History offers a vantage point on the impact of the upcoming election on your investment strategy.

Historically, stocks have fared better under Democratic presidents ... over the long-term (Go Kerry!). Except of course when the incumbent is a Republican in which case the market tends to perseverate as a new day dawns and, along with it, the twin threats of uncertainty and disruption (Go Bush!). When that same Republican incumbent has returned to the White House, the Dow has risen on average 11% in the following year (Go Bush Go!). However, when that incumbent is ousted, stocks have done even better returning 14% on average in the following year (oops, Go Kerry!). Finally, stocks have done their very best under a Democratic president and a Republican Congress, a situation that has occurred three times in the past 100 years (Go bipartisanship!). Unfortunately, 3 out of 100 does not a trend make. At least not one an investor can rely upon.

The smart answer is to do nothing with respect to repositioning your portfolio in anticipation of election results. If you still feel an action step is required, pull out your portfolio's third quarter performance report, the one sent by your investment advisor.
Evaluate the skill with which your advisor navigated the rocky shoals of July-September market performance.

Particularly note the investment return achieved on your portfolio after paying your advisor's fee and the various other fees attributed to managing, trading and custody of your portfolio assets. Compare that return to the market benchmark(s) against which your advisor pegs his or her performance. Now, that something, carefully evaluating your advisor's investment performance in a challenging market environment, and making decisions based on that evidence, carries the potential to pay dividends far beyond the remains of the day. 

Paula Chauncey, CFA, Managing Partner, être llc, 617-716-0257 works with individuals, and their closely held businesses, to develop and execute wealth-building strategies. pchauncey@etrellc.com.

Oil at $50 a Barrel and an Uncertain Global Marketplace Has Investors Looking at Non-traditional Investments to Stabilize Portfolio Returns.

With oil over $50 a barrel, rising interest rates and a continuing war in Iraq, a true cutting edge portfolio looking to stabilize returns in these uncertain times will incorporate some non-traditional or alternative asset classes. In most cases investors have found their performance to be the same or incrementally better than the 100% traditional portfolio of stocks and bonds, and have found their volatility and risk profile reduced at the same time, a win/win scenario.

The importance of integrating alternative investment classes with traditional investments cannot be overstated in the sideways markets we are seeing this year. If you ask an investor about their stock portfolio results over the past few years, the investor might respond with a grunt. If you ask the same investor about the performance of his real estate portfolio, he more than likely will crow, " It is up 30%. Non-traditional investments can do well when the equity market is not doing well.

Non-traditional investments may include such investments as hedge funds, structured investments, annuities, real estate investment trusts, commodity futures, oil and gas limited partnerships, equipment leasing, and others.  Non-traditional investments are typically not correlated with the performance of the equity market. This means that they can rise in a falling market or fall in a rising market. Simply, they go their own way. Just like the real estate advance in the face of a  up and  down stock market that we have seen over the  past  few years .

By integrating non-traditional investments into a traditional portfolio , one is not necessarily going to achieve greater returns, but rather lower risk and volatility for a specified return. Non-traditional investments are not for everyone. An investor should do their due diligence in reference to any liquidity, and marketability issues as each investment has its own particular nuances .

Gary K. Hager, CFP, Founder and President, Integrated Wealth Management, Edison, New Jersey, a full service wealth advisory firm, serves as the primary financial resource for affluent families and closely-held business owners, providing state of the art planning solutions which effectively integrate the disciplines of Wealth Accumulation and Wealth Preservation. Contact:ghager@iwmco.com, 732-510-1611.

PERSONAL FINANCE/RETIREMENT

Comfortable Retirements for Boomers May Depend on Their Willingness to Mortgage Appreciated Real Estate.

Many Boomers are beginning to understand that their appreciated real estate is their future financial saving grace. A straight sale, with the intention to downsize and invest the difference, is often the least beneficial way to use valuable real estate. Reverse mortgages, interest-only loans, and even home equity lines may make the difference between a difficult, money-pinched retirement and a comfortable one. Reverse mortgages can produce enough money to pay increased property taxes, maintenance costs on a retirement home, as well as increased health care and long-term care expenses for one or both parents. Keeping real estate means keeping an appreciating investment and the appreciation is probably better than most conservative investment portfolios.

Few adult children begrudge their parents the right to use their wealth in any way they must to have comfortable senior lives. It is the Boomer parents themselves who are having problems with the concept of the extended lengths of retirement they must fund. The potential of reverse mortgages for anyone other than a destitute widow in her 80s, is a new concept. Once a Boomer couple realizes they have potential reverse mortgage assets they can apply to their income stream, they can reduce their worry and manage their older lives more comfortably.

Bottom line, the children can still inherit their parents’ valuable real estate, because despite the money owed to the bank at the time of the death of the parents, the home continues to appreciate annually, and at a greater rate than is withdrawn for the reverse mortgage.

For example:

• Mr. and Mrs. Green, age 61, with a $500,000 home, may take a $200,000 new reverse mortgage with no closing costs, a product now commonly available. If the cost of the mortgage on that $200,000 averages 6.23% during their lifetime, 24 years later, at the time of the parents’ death at age 85, the mortgage balance is $786,000. Meanwhile the house has grown by 6% a year, the national average for the last 50 years. The house is now worth $2 million. The children inherit the property and the mortgage. In fact, they are inheriting a substantial estate of more than $1.2 million. If the parents used the money to maintain and improve the real estate, it would have appreciated more.
• If the Green’s three children want to keep the house, a dynasty trust allows them to take title, sell it, keep it, or mortgage it in order to keep it. The children could take title as tenants in common, and each one sign for a third of the outstanding mortgage as trustees of the Dynasty trust. The trust defers capital gains in the transfer.
• The children will have to qualify for and be able to pay a mortgage for their one-third share, but they can also choose to sell and discharge the mortgage with the proceeds. Banks do not make reverse mortgages without a serious look at the appreciation potential of the home. It is likely that the property will continue to appreciate if one child or the three children keep it. The value can be borrowed against for college costs or any other income needs the adult children have. All children will get a step up in basis.

Appreciating real estate can be looked at as an excellent solution to the future cash crunch many Boomers can expect to have.

Pearson Financial Services, Dennis, MA, is the author of "The Million Dollar Gift: Dynasty Trusts. Why Leave Your Assets Any Other Way", written for his clients, their families, and his own family. He offers a fully integrated wealth management process, incorporating investment, retirement, financial and estate planning specialists under one roof, serving clients as their family's office, designing and implementing strategies to protect and distribute their wealth and highly appreciated property.  Seth Pearson, CFP 800-385-7925

Reviewing IRA Beneficiaries Critical for Estate Planning.

One of the most critical aspects of your estate planning may be in jeopardy. For many individuals, the largest piece of their individual net worth is their IRA. When the owner of an IRA dies, the beneficiaries listed on the IRA inherit the IRA regardless of any other estate planning document.

Life is not static. Events may have occurred that have made the original beneficiary inappropriate. One likely occurrences is the loss of a spouse through death or divorce. Often, people leave the contingent beneficiary blank or simply write in "estate".

A financial planner who sits back and allows an IRA to end up in a client's estate is courting disaster and a potential malpractice lawsuit from the client's estate.

Further, the IRS has made dramatic changes in the rules governing beneficiaries and required distributions. Reviewing the primary and contingent beneficiaries of your IRA is a critical and necessary step and if your financial planner has not done that recently, ask why not.

Donald L. McCoy, J.D., CMFC -- Planners Financial Services, Inc., 952-835-9000.  Minneapolis, Minnesota. Registered investment adviser and subsidiary company Montgomery Investment Management, specialize in the management of no-load mutual fund portfolios for individuals and retirement plans designed to protect capital by reducing risk. pfshim@usinternet.com.

A Good Mortgage Experience Requires a Broker Who Wants a Long-Term Relationship.

All mortgage brokers are not alike. There are transactional mortgage brokers, who want your business and forget your name, sometimes even before you close on your home. And then there are the brokers who work with their team and hope to impress you enough that you will consider them for all your mortgage business going forward. The differences are dramatic.

Here are the questions to ask and the answers you should hear when interviewing a mortgage broker.

1. Does the mortgage broker have a trained underwriting/loan processing staff that reviews all of the documents before submitting them to the lender?
   
   Your broker’s loan processing team should be experienced and know enough about the industry and underwriting standards that they see the problems before submission to the underwriter at the lending institution. Comprehending the issues allows the team to solve them, avoiding extra requirements (conditions) that can be attached to the mortgage, or, worst case, a possible application denial. Often called a “mortgage concierge” service, this attention to detail on your behalf adds no cost to the mortgage itself, but clearly speaks to commitment by the broker’s team.
2. Does the mortgage broker have a track record of successfully fighting to have conditions removed that don’t really apply to the client, or that are really unnecessary?
   Your broker should be able to give you examples of requirements that they have successfully had waived on behalf of a client such as:
   a. Lenders may ask for newer, better pay stubs, when a “Verification of Employment” from the employer would do just fine. Your mortgage concierge should obtain this Verification of Employment form with the initial documentation.
   b. Lenders may ask for a letter of explanation written by you about a late credit card payment. The mortgage concierges can argue (in most cases) that a late payment will not affect the loan, particularly when credit scores are high. If the loan case was such that the late payment did affect the loan, a mortgage concierge would call the creditor, obtain the information on the late payment, and then write a “True and Certified” explanation letter which would be just as effective as a letter written by the mortgage applicant.
   c. Lenders may ask for verification in advance that the applicant has the funds that will be required to close. This could be a problem when the down payment funds are actually coming from the sale of the old home. A mortgage concierge could arrange with the lender to change the condition to a “to be fulfilled at closing” condition, and then work with the client to make certain both homes close on the same day.
3. Does your broker have a comprehensive documentation process that gives them all the ammunition they need to complete the processing of your loan without coming back to you several times for more information?
   Your broker should be able to resolve at least 90 percent of all conditions with the data they have obtained from you in the beginning of your loan process -- all the assets that make up your net worth, all of your income information, as well as the name and contact information for your CPA, realtor and financial advisor.
4. Does your broker’s team have the infrastructure to meet your needs even if your assigned mortgage concierge is not in when you need them
   All of your records should be universally available to everyone in the mortgage broker firm, so that anyone can answer questions about the status of your loan application at any given time.
5. Does your broker have a policy of taking care of problems permanently rather than making quick fixes in order to close loans?

It is more work, but a good mortgage broker will close all the loops, including making sure the old mortgages are taken off your title, and that correction letters are filed with the three credit reporting companies rather than needing to be repeated when you need another mortgage at another time . Often titles are vested incorrectly and also need to be corrected.

The good mortgage brokers have a long-term attitude toward client service. Ask for examples of extra effort your broker and their team have made to make the mortgage processing go smoothly. Listen carefully. You deserve a mortgage broker who cares about you and your family as you make your largest purchase ever.

Gibran Nicholas is the President and founder of Nicholas & Co. Mortgage Planning Solutions, a mortgage lender and broker based inAnn Arbor, MI. He offers a 90-minute online workshop entitled "Advanced Mortgage Planning for High Net Worth Clients" that discusses these strategies in further detail. He has developed the ARM Planner™ Marketing Kit, and online workshops, to better assist mortgage originators in increasing their profitability with real estate investors and financial advisors. Go to http://www.ARMPlanner.com; Phone: 888-608-9800.

PRACTICE MANAGEMENT

Top Five Reasons Brokers Need or Want to Change Firms.

There are five trends in the brokerage industry that are jogging numbers of brokers into looking at possible employment at a new firm:

1. Brokers wish to change the way they conduct their business or bring in new business and are faced with growth limitations in their current business model. Change can come in several ways, such as:
   -- They can go independent and gain autonomy, monetize their book, and get a higher level of payout on probably the same book of business.
   -- Or, they can sign on with a bank brokerage, where there is a lot of “low hanging fruit,” or lead sources that can be tapped into relatively easily from banking partners and platform professionals.
2. Brokers move to form or join a team with a potential perfect partner who may not exist at their current firm. The broker, therefore, is interviewing branch management and investigating the possibility of a new team when considering a move. Or, they may need to leave an existing business partnership that is not working.
3. They have a hybrid book of business, (both retail and mid-market institutional) and their present firm is pressuring them to give up their mid-market accounts, relinquish them to a broker on the institutional side of the firm, and refocus their attention on the retail side of the business. This potentially represents a great loss of income for the broker who is asked to sever long-term relationships. Moving to a smaller firm allows the broker to continue to keep existing clients and opens the possibility of bringing in new institutional clients because less account duplication is likely.
4. When a broker’s current firm is purchased, there are a number of changes (payout, benefits, vesting of deferred comp, not to mention new management,) that may not be in the broker’s best interest. Larger producing brokers are often offered retention bonuses to remain, giving brokers the incentive to see what the industry might offer to get them to move elsewhere.
5. A relatively low producer working with a firm will be getting specific or implied pressure to improve production. Moving to a smaller firm, the broker may find a warmer welcome and fewer expectations.
   These five trends means opportunity for brokers who are not afraid to investigate change and what that means for their future career success.

Mindy Diamond is President of Diamond Consultants, Chester, New Jersey, a search firm specializing in recruiting wirehouse and regional firm brokers with trailing 12-month’s production between $200,000 and $5 million. Her firm assists these financial consultants in evaluating opportunities in the industry and introduces them to other wirehouses, regional firms, banks, or independent broker-dealers. Mindy can be reached at 908-879-1002, or mdiamond@diamondrecruiter.com.

E-COMMERCE

It Pays to Focus on Website Profitability – But Most People Don’t Know How.

Company executives with bottom line responsibilities usually can figure out their profit margins competently – that is, until they try to apply their normal accounting principals to their web-generated sales. The strategy behind web site profitability has several components:

• Graphic images that drive comprehension and sales.
• Creative and compelling copy that works to produce the Most Desirable Response ™ (MDR). Most managers do not know what their MDR is for their site, effectively short circuiting their success.
• Functional applications that utilize today’s technology for specific reasons with specific goals.
• Controlled and reliable mechanics handled seamlessly on your behalf (domain names, hosting, back up, etc.) by your web strategy company.
• Sales success defined by web site math. Most managers do not understand web site math.
  (For a .pdf describing the formulas that determine website profitability, e-mail beth_chapman@inkair, with “Web Site Math” in the subject line.)
• Ability to take web site statistics about what customers teach you every month and translate that into action steps.
  There is strong probability that web site managers are drowning in the data that can be spun off automatically from a web site. There are only a few pieces of information that you need from your web consultants so you can figure out profitability, but you really do need them. They include:
  -- How many visits have you had?
  -- How many leads did you generate?
  -- How many leads did you close?
  -- Were this month’s results better than last month’s?
  -- What did the customers’ like best this month?

You may like the answers to the previous four questions, or you may not. Either way, the best web consultants should always provide you with the answers to a fifth question – “ What action steps should you take to improve your results.”

The real power of the Internet, is just now being seen. It is not sexy. It is a war of increments. If you web site is not as profitable as you think it should be, look at the math, then look for MDR strategies and action steps that can put you on a path to profitability. Your web strategy consulting firm should drive this process for you.

KISS Computing is full-service web strategy firm, providing design, implementation, long term evaluation, and action steps for change that keep web site profitability above $5000 a month for small and mid-size companies. Ross and Amy Lasley KISS Computing, Eastham, Mass., 508-255-9550 x401, ross@kisscomputing.com.

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